Israeli Court Rules No Difference in Sentencing for Fake vs. Foreign Invoices

The Central District Court in Israel has ruled that there is no basis for leniency in sentencing for individuals who issue "foreign invoices" compared to those who issue "fictitious invoices." A foreign invoice reflects a real transaction but is not issued by the party that performed the service, whereas a fictitious invoice has no underlying activity.

The ruling came in the case of Itay Gravi, who admitted to issuing invoices totaling 3 million shekels from companies he did not own for construction, quarrying, and sawing work performed by Ramzi Sarhan. Sarhan paid Gravi with non-negotiable checks, which Gravi cashed through exchange offices. This allowed Sarhan to evade 400,000 shekels in income and value-added taxes between 2014 and 2017.

The Kfar Saba Magistrate's Court initially sentenced Sarhan to 15 months in prison and Gravi to 10 months. Both appealed the severity of their sentences. The prosecution had sought longer sentences of two years for Sarhan and 14 months for Gravi.

In a dissenting opinion, Judge Dror Avad-Ayalon suggested distinguishing between the two types of invoices, proposing reduced sentences of 11 months for Sarhan and nine months of community service for Gravi. He argued that Sarhan's sentence range was too high and that Gravi, who was entitled to deduct the payment for the work if he had proper invoices and did not gain financially, should receive a lighter sentence, especially since the relevant parties from the invoicing companies were not investigated.

However, Presiding Judge Shmuel Bornstein, joined by Judge Amit Michels, rejected Sarhan's appeal, upholding the principle that there is no significant difference in sentencing between fictitious and foreign invoices when the intent is tax evasion. Bornstein cited Supreme Court precedent and argued that distinguishing between these types of invoices creates significant practical difficulties, particularly when the clear goal is tax evasion by both the issuer and the user of the false invoices. Michels agreed with Bornstein regarding foreign invoices but concurred with Avad-Ayalon on reducing Gravi's sentence due to unique circumstances and the settlement of his tax debts.

Ultimately, the court ruled by majority that Sarhan's appeal would be denied, while Gravi's sentence would be commuted to nine months of community service.